CLSA Raises Red Flag On Colgate-Palmolive’s Stake Buy In Bombay Shaving Company
The transaction was done in an Indian company through an unlisted entity instead of Colgate-Palmolive India.
Global brokerage CLSA sees the Colgate-Palmolive Asia Pacific’s debut investment in the Indian market by acquiring a minority stake in Bombay Shaving Company as a threat to the shareholders of its Indian subsidiary in the long run.
The Hong Kong subsidiary of the global consumer goods giant Colgate-Palmolive will be leading the primary investment round of about Rs 18 crore with other investors for picking up a 14 percent minority stake in the Indian men’s grooming company, the Economic Times paper reported, quoting documents filed with the Registrar of Companies and accessed from data research platform Tofler.
CLSA, in a note, raised a red flag on the transaction as the deal was done in an Indian company through an unlisted entity instead of its Indian subsidiary Colgate-Palmolive (India) Ltd.
While the business is small today and only a minority stake was acquired, its still a conflict of interest for Colgate-Palmolive India’s minority shareholders, given that Bombay Shaving Company also operates in the personal care and grooming segments, it said. If the business format ramps-up, over time, Colgate India shareholders would be devoid of any upside from the acquisition, said the note.
On the face of it, the acquisition is small but raises concerns on governance due to category overlap. Given Colgate India’s local understanding and strong distribution muscle, acquisition by the listed co would have made more sense, in our view.CLSA Note
Several consumer firms such as Marico Ltd. and Emami Ltd. have been acquiring stakes to augment their understanding of these evolving business models, the note said. The acquisition via a regional subsidiary of Colgate U.S. was surprising as Colgate India has a stronger understanding of Indian markets, it added.
Bombay Shaving Company Outlook
It was founded in 2015 and works on a subscription model and supplies men’s grooming products similar to the Dollar Shave Club in the U.S., the report said. The company has a presence in shaving products, beard care, bath care, skin care, and is looking to develop a range of bath and body products, according to its website.
CLSA notes that the company is likely to end the current financial year with Rs 20 crore of revenues as per the current run rate. Colgate India has a cash balance in excess of Rs 450 crore as of the end of the last financial year.
Bombay Shaving Cream Timeline
- October 2015: Company formed.
- August 2016: Raised Rs 4 crore from angel investors.
- August 2017: Raised Rs 14 crore from Fireside ventures and angel investors.
- August 2018: Raised Rs 18 crore from Colgate, Fireside ventures and angel investors.